Monday, April 19, 2010

Kindle for your Chaos Contest

Kinaxis, providers of on-demand supply chain analytics, released a contest recently called Kindle for your Chaos! through their online community and blog called Kinaxis Supply Chain Experts Community.

Congratulations to our own Clorisee Canada [web bio | Facebook | LinkedIn] for her submission and story which one her a brand new Kindle.  Great job, Clorisee! Here is the story that she submitted:

In a previous job, I met with customers who were considering switching their business from one shipping carrier to another.  My role was to evaluate the customers supply chain process and help sales win the business by presenting technology solutions that would help improve the process.  The challenges that I faced were many, but gaining the customers trust by being honest with them about capabilities was a great way to help win business. 
I remember going to Michigan to meet with a company that shipped lots of international packages.  They had 3 systems setup and 35 people to do a 2 person process. You see, their systems were all setup to do a small piece of the shipping process due to limitations in their systems.  So the staff walked from one system to another to complete the shipping process on one shipment.  When I first walked into the warehouse and they showed me their shipping process I looked around the room to see if I was on “Candid Camera” because in this century with all of the technology available no one should have a very manual process for creating a carrier shipping label and documents needed for international shipping.  Once I determined I was not on candid camera I asked a lot of questions and proposed a GREAT solution to pull all of their manual processes together to make it easy and more efficient to ship.   
I am sure by now you are wondering how I knew my solution was a great one. Well here is what happened next.  The Carrier I worked for did not win this business because of pricing.  The Carrier that won the business did not present a solution to help streamline the shipping process but their rates came back so low which allowed the customer to still save money.  Once the customer announced the carrier that was chosen they called me to ask if I could present my proposed solution to the winning carrier because they could not explain it and the winning carrier could not think of anything.  This was wrong on so many levels.  I of course turned them down for so many reasons but this validated that my solution was really good. 
Without going into a lot of details enhanced automation of information would have solved their issue but getting to that required out of the box thinking because this customer had network connectivity limitations. Orders were sent to the warehouse via email because the warehouse was down the road from the customer service office and the internal systems were not connected via a network.  To make all of this happen the carrier needed to build a bridge using a server with a make shift network connection so that communication could happen from system to system. Once this internal fake network was setup we could solve their other issues and eliminate a lot of their manual processing that they did. 

Saturday, April 10, 2010

No More "Unlimited Weight" UPS Letters - a 44% Increase in Your Shipping Costs

For years, UPS has made sure that shippers comparing their express envelope shipping with FedEx, or even premium US Postal Service offerings, know that a shipper can stuff as much paper as they would like into the UPS letter and legal-sized envelopes without any restriction on weight and still obtain the "letter" rate. In contrast, the FedEx terms place a limit on letter and legal envelopes at eight ounces and everything more than eight ounces is billed at the actual weight.

For shippers or organizations like PA & Associates, which help shippers with their spend management strategies, special consideration needed to be given when negotiating and comparing UPS envelope shipments to FedEx envelope shipments to ensure that shippers considering a move from UPS to FedEx did not realize an increase in shipping expenses in this area.

However, UPS changed this policy for 2010. As noted in the UPS Tariff/Terms And Conditions of Service for Package Shipments in the United States, UPS will now charge by scale weight (rounded up to nearest pound) for letter and legal envelopes weighing more than eight ounces (see page 23, section 35.3). Interesting to note that the Terms and Conditions document is buried four clicks into the website.

It isn't surprising that UPS changed its policy for this segment of shipments given their intensive focus on package yield which began in 2009 (more about this fundamental, strategic change in managing profit margins which has already begun to affect end-user pricing and discounts in a future blog post). What some may find surprising is how UPS has (or has not) conveyed this change to their users.

At PA & Associates, we have been monitoring our client data for changes to UPS charges for letters. We have noted that the earliest instance of UPS changing the way they charge for letters weighing more than eight ounces was for the week ending January 23, 2010.

Yet, phone calls and e-mails to a number of UPS account executives to inquire about this issue were met with the same initial response, which went something like this, "No; UPS allows customers unlimited weight for envelope shipments". When we supplied the UPS contact with the reference to the Terms and Conditions document and section stating this change, the response was varied from the honest "I didn't know about this" to the embarrassed "I'll have to check on this and get back to you".

To date, none of our clients which we have inquired with about this change have been made aware of it by someone from UPS. For some of you more cynical users of UPS (or FedEx, for that matter), you may not find this surprising. After all, both companies have issued annual increases and raised surcharge amounts and have been less than helpful in providing the information the average shipper needs to fully understand the impact of increases to their bottom line.

What is the impact to an average UPS shipper?

For illustration purposes, let's create an average week of shipping for a user of UPS services to determine the impact to the shipper's bottom line.

On any given week, our shipper sends 100 letters (in addition to their regular UPS packages). This would not be an uncommon or high amount for someone in the financial services industry (e.g.; mortgage or title business). The shipper is well-aware of the UPS policy to allow for unlimited weight in the envelope and, frequently, sends more than eight ounces of paper per envelope. In fact, this had been a point of consideration in choosing UPS over FedEx for the type of shipping they do.

Of the 100 letters per week, let's say that 25% are contracts or checks and the remainder are loan packages or escrow closing information...stuff that would weigh anywhere between 2 and 7 pounds (we have some creative shippers that, somehow, get upwards of 12 pounds into envelope products!). For pricing purposes, let's divide the 75% of eight-ounce plus shipments evenly over 1 to 7 pounds (about 10 pieces for each weight per week). And, for ease of calculation, let's say that each of these pieces are destined for a Zone 5 recipient.

The results

Prior to the change in pricing, our hapless title shipper was spending $1,717.50 per week to send 100 letters to Zone 5 (this would just be the base rate shipping charge -- at the list rate for 2010-- not including any applicable surcharges or accessorial charges).

After the change in pricing, the same packages now cost $3,887.50; an increase of $2,160 per week or a whopping 44% increase. Over a period of 52 weeks, that's an additional $112,320 in shipping costs that our shipper probably didn't account for in their last re-work of the 2010 budget.

And the sad truth is that the average shipper who does not employ spend management strategies in this critical spend area probably has no idea that costs have gone up. Those that do monitor costs closely might see that something is out of whack, but have no idea what it is or where to find the changes.

What can you do?

The obvious (and biased) answer is that you should contact PA & Associates for assistance in managing your costs. We can assist most shippers, regardless of annual spend, with either a formal spend management project or even just free strategies if you don't qualify for one of our projects. In fact, I'll provide my number here and you can reach me directly: 866-200-SAVE (7283) x 201.

However, there are areas to consider when reviewing your agreements. If you are considering a move to FedEx and ship a critical number of envelopes in your shipping profile, make FedEx aware of this (provide relevant data with service type, weight and zonal breakdown) and request that they make a provision for you in your agreement for unlimited weight envelope shipping. A word of caution, however; the new focus by FedEx and UPS on package yield and a change in honoring discount requests is beginning to take hold in the mass market. Your chances of obtaining such a provision may be slipping away day by day.

If you are a UPS shipper, you can make a similar request of UPS. While FedEx has a formal program to bring parity in this area between their pricing and the way UPS used to honor the unlimited weight envelope, UPS does not. This makes it easier for a FedEx shipper to make such an appeal, while a UPS shipper will be reviewed on a case-by-case basis. So far, UPS has honored our requests to allow a shipper to ease into this change by offering some limited weight, limited time (or both) provisions that do not bring an abrupt change to shipping costs. Note, however, that we're experts at this.  Your results may vary.

I've yet to find any of our clients or a shipper in the general population that actually reads the Terms and Conditions when they are published every year. I once had a bout of insomnia and took a read of the T&C document; worked just as good as an Ambien!